Company demands rate hike for new coal plant

GRAND RAPIDS, Mich. - Opponents of climate change legislation typically argue that regulating global warming-causing emissions will push up energy prices. A new report from the Sierra Club and the Natural Resources Defense Council, however, reveals that plans to build a new coal-fired utility plant here in Michigan include an onerous rate hike for several million electricity customers.

Consumers Energy, Michigan's second largest energy supplier, wants to impose an 8.5 percent rate hike on its customers, more than $32 annually, in order to pay for a new coal-fired plant near Bay City, known as the Karn-Weadock plant.

In addition to this up front proposal, the report says, the electricity produced in the new plant would likely have a hidden cost of as much as 45 percent more than the current average cost of generating power at Consumers Energy's existing plants.

In other words, conservative estimates of the hidden cost of building a new coal-fired plant suggest Consumers Energy's plans would add between $67 and $76 to the typical household energy costs each year by 2017.

"With the introduction of new energy markets that have developed over the last five to 10 years, coal has become less competitive and a riskier investment," said Tom Sanzillo, senior associate at TR Rose Associates, the group that prepared the Sierra Club/NRDC report. "This report shows that if the Karn-Weadock plant is built, ratepayers will see an increase in their electric bills well beyond what is considered within the normal bounds of typical increases in Michigan."

One of the biggest factors for the high projected rate hikes is the rising cost of construction of the plant. Corporate estimates in 2007 put construction costs for Karn-Weadock at just about $2 billion. A January 2009 company statement, however, suggested that the real costs are closer to $3 billion.

The Sierra Club/NRDC report estimated that the company will also have to raise an additional $600 million for financing charges and interest on the money borrowed to build the plant.

The total price tag of almost $3.6 billion stands at more than double the company's original estimate, a fact that the company has been legally required to report to the Michigan Public Service Commission, but for obvious reasons has managed so far to keep out of the public eye.

The almost doubling of the price tag in just two years has many observers worried that the total cost will continue to rise rapidly before final construction, causing the company to demand even higher rate hikes from consumers.

If the final cost follows national trends in coal plant construction, "it is reasonable to expect that the estimated cost of building the plant will continue to rise, perhaps significantly, before it is completed in 2016," the report found.

Ballooning construction costs for plants like Karn-Weadock have played a large role in the cancellation of some 127 proposed coal plants across the country. According to the report, residents across Ohio, for example, are still paying higher rates for coal-fired plant projects cancelled due to high construction costs.

New coal-fired plants in Wisconsin, South Dakota and Wyoming have pushed up electricity costs for consumers between 20 and 41 percent, the report found.

In addition to growing construction costs, the rising cost of coal and carbon emission offsets will also put upward pressure on the total costs of the project and the production of electricity at Karn-Weadock.

The report questioned the need for a new coal-fired plant in Michigan. Current economic trends in Michigan suggest the state will not need new sources of electricity until after 2020. In fact, the state is already working with Consumers Energy to close several existing, but unused, coal-fired plants.

Economic indicators suggest that additional rate hikes to cover the ballooning cost of this plant will be a burden for hundreds of thousands of Michigan working families already feeling the pinch of high unemployment and stagnant wages.

According to Consumers Energy's own estimates, more than 60 percent of the energy it distributes to consumers comes from coal-fired plants, much higher than the national average.

Many Consumers Energy customers complain that the company's "Green Generation" program, which purports to provide larger amounts of electricity from renewable sources like wind and solar power, has proven slow and uneven compared to its push to build expensive new coal plants.

In a recent speech at the Cornell School of Industrial and Labor Relations, AFL-CIO President Richard Trumka outlined the main objectives of the labor-led Green Jobs Campaign. Trumka noted that with the leadership of the Obama administration and new federal government investments in renewable energy sources, over the next two decades some $1 trillion in private and public money could be invested in building up renewable energy sources and environmentally-friendly construction. He projected that some 1.4 million jobs could be created as a result.

Instead of pushing for costly, risky and environmentally unhealthy coal-fired plants, some Michigan residents say, Consumers Energy should help create new and lasting jobs with meaningful investments in renewable energy resources. In a press statement for Progress Michigan, Mark Muhich, a Jackson, Mich., resident said, "Consumers Energy should not play energy roulette with ratepayers' money. Instead, the company should invest in energy efficiency and cleaner energy alternatives that will create jobs and help Michigan's economy."

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The call to reduce the use of coals is valid for western countries but unfortunately, coal statistics show developing economies are more likely to increase their use of coal in coming years because of its affordability and to meet increasing demands for electricity and steel for the coal industry. www.coalportal.com